Ameren Illinois reducing rates again after infrastructure bill enacted
JEFFERSON CITY, Mo. – As Rep. Rocky Miller’s HB 2816 moves forward, Ameren Illinois announced it will file a rate case to reduce customer rates after the Illinois state legislature enacted a similar policy.
“We made a long-term commitment to our customers to strengthen the power grid and deliver cost-saving enhancements and it’s working,” said Craig Nelson, senior vice president, Regulatory Affairs and Financial Services for Ameren Illinois. “When combined with expected lower electric supply costs, our customers will continue to see stable prices for an advanced energy delivery system.”
The company is expected to request an approximately $14 million decrease in delivery service rates for 2017.
It will be the fourth such rate decrease in the years since the landmark Energy Infrastructure Modernization Act (EIMA) was passed in 2011, enabling Ameren Illinois to accelerate its efforts to modernize the grid and provide consumers more efficient, reliable energy delivery.
Further, Ameren Illinois’ gas supply charges are at their lowest levels since February of 2002.
Sen. Ed Emery, R-Lamar, inquired of policy similarities and differences when SB 1028, offered by Sen. Ryan Silvey, R-Kansas City, was heard in the Senate committee.
“[T]he proposed Missouri legislation is similar in many respects to Illinois,” said Erin M. O’Connell-Diaz, president of FutureFWD Inc. wrote in reply to Emery. “It is, however, properly different in order that it be structured in a manner that is appropriate for Missouri.”
The letter addressed the Senator’s quandary as to the differences between the Missouri and Illinois legislation.
O’Connell-Diaz testified in support of SB 1028, and outlined to Emery similarities between the policies.
“As I noted in the hearing, the similarity is found in the underlying functionality of the performance based ratemaking (“PBR”) framework,” O’Connell-Diaz wrote. “In a manner comparable to SB 1028, the framework used in Illinois builds upon existing cost of service regulation by incorporating a full annual review by the Illinois Commerce Commission, and annual rate changes (up or down) based upon actual costs. Both SB 1028 and EIMA utilize FERC Form 1 and set forth an annual three-step process: (1) use the most recent costs to set prospective rates, (2) reconcile costs to actual for the previous year, and (3) apply a revenue test or ROE band to limit the extent of over or under-recoveries due to sales fluctuations.
“That basic foundation is similar, but the details and additional provisions contained in the overall legislation are distinctive,” O’Connell-Diaz continued, also explaining eight differences:
- Prescriptiveness and Commission Implementation Authority: The Illinois legislation is longer and more detailed. The Illinois legislation is very specific concerning how the process should operate for performance based rates. In Missouri, the legislation is less specific, with the Public Service Commission given broader authority to implement and administer the process.
- Rate Caps: At present, the Illinois EIMA does not include any provisions that cap rates, or the revenue requirement used to set rates. In contrast, the Missouri legislation has revenue requirement limits that apply to all customer classes over the entire 10 year term of the proposal. When it was initially implemented, the Illinois legislation contained rate caps applicable to the residential class only, and those rate caps were calculated on both distribution and purchased power costs. Those caps expired after 3 years, and today there are no caps.
- Fuel and Purchased Power Costs: Under the current substitute draft language for SB 1028, fuel and purchased power costs would be included in the base rates recovered through the PBR process. In Illinois, the EIMA only includes distribution utility costs, not power or transmission costs – those costs are recovered through separate riders that operate independently from the EIMA “base rates” for distribution service. In Illinois, many customers receive their power supply from third party suppliers. For those residential customers that do not switch to a third party supplier, their supply service is provided pursuant to a rider (such as “Rider PER” in the case of Ameren Illinois).
- Return on Equity (“ROE”): In Illinois the formula is similar but not the same. In Illinois, the ROE equation is the product of 580 basis points plus the rate for 30-year treasury bonds. This equation is calculated annually. As with the Missouri regulation, there is a band or collar around actual earned return. In the Missouri legislation, that band is 20 basis points either way, and under the Illinois EIMA, it is 50 basis points either direction. This means that in Illinois there is a greater potential to over or under earn for the utility depending on actual kilowatt-hours delivered to customers as compared to the proposed operation of SB 1028.
- Special Smart Grid Provisions: There are extensive provisions in the EIMA related to the planning, implementation, and performance of Advanced Metering Infrastructure (“AMI”). At the time of passage, smart grid technology was rapidly emerging in the industry, and its deployment in the Com Ed and Ameren Illinois service territories was a focal point of the legislation. 6i Metrics: The Illinois bill contained more and different performance metrics relative to SB 1028. The metrics included reliability metrics, but also metrics related to AMI technology, unaccounted for energy, estimated bill reduction, minority and female owned business enterprises, and metrics that differentiated between combination gas-electric utilities, and electric only utilities. The metrics were tied to Illinois-specific policy goals.
- Mandatory Investment and Job Creation Levels: At the time of the negotiation and passage of the EIMA, Illinois was still experiencing economic impacts associated with the 2008 market crises and recession that followed. During that period, unemployment was very high in some regions of Illinois. Hence, specific investment levels and job head count requirements were included in the law.
- Special Programs: There are several Illinois-specific mandates under the EIMA regarding educational and research efforts, distributed generation provisions, pilot programs, and low income initiatives.”
O’Connell-Diaz also wrote to the House sponsor, calling the Illinois law “transformative.”
“In just a short period of time, this legislation is today delivering real and quantifiable benefits to our citizens,” she wrote. “At the same time, our electric rates have remained low and stable, electric reliability is improved and we are building toward a secure energy future. … At the House Committee hearing for HB 2816 held on March 29, 2016, there were a number of statements made to you and your committee which presented inaccurate and misleading assertions regarding the Illinois experience with our PBR legislation. Given that the hearings were constrained by the schedule, I wanted to provide you with a written response to those erroneous remarks. In particular, the commenters suggested that Illinois is a ‘disaster’ under PBR. I would respectfully submit that the factual record supports a conclusion that is exactly the opposite-performance based rates have been an unqualified success for the State of Illinois.”
She listed reliability improvements, award winning grid modernization, and stable and low electric rates as reasons the policy would be good for Missouri, as she believes it has in Illinois.
1. Reliability Improvements: Investments in our electric grid, as provided for under our legislation, are improving the strength and reliability of our entire electric network. Our newly upgraded, stronger electric system has resulted in millions of fewer power interruptions in large part due to newly installed distribution automation components and modern technologies; storm hardening work and storm restoration improvements have resulted in 30% faster restoration times; while our overall electric reliability was good before PBR, we have experienced a statewide average of 30% improvement due to executed programs under the legislation; savings to residential and industrial customers due to outage avoidance represent billions of dollars of societal savings.
2. Award winning Grid Modernization Status: In January 2016, Illinois was ranked #1 in the United States for state support of policies and plans for grid modernization initiatives and #2 for overall improvements to its electric system. These technical improvements are directly attributable to the programs, investments and forward planning fostered by Illinois’ PBR legislation. Additionally, in compliance with the performance metrics of the law, to date, thousands of full time jobs have been created due to the legislation (this number does not include supply side jobs). These metrics are filed by the utilities in their required annual rate cases where they are properly reviewed by the public utilities commission and all interested parties.
3. Stable and Low Electric Rates: Since implementation of PBR in 2011, Illinois industrial and residential customers have enjoyed stable and low electric prices while at the same time our utilities are investing in and building our state’s energy future. Due to proper oversight by our public utilities commission coupled with the many features of Illinois’ PBR mandates the rate impacts for this time period averaged a 2.5% increase on the delivery portion of the customer charge (U.S. Energy Information Administration (EIA) at http:www.eia.gov). Notably, these rates remain lower than Missouri’s and have resulted in Illinois’ rates being consistently the lowest in the Midwest and some of the lowest in the United States. These verifiable numbers are hardly the rate shock alluded to by the opponents of HB 2816. Based on this factual record of achievement, it is clear to see that PBR has been an unqualified success for the State of Illinois. I hope that this information has clarified the deceptive statements made about my state’s impressive record of success under our grid modernization legislation. It is important that you and your colleagues have all the salient facts regarding this important and pivotal pending legislation. Thank you for your time and consideration in permitting me to submit this communication for the record of your committee.”
Perhaps most unique in the Missouri bill is the unprecedented rate caps for electric consumers, as well as the renewable language that will restart solar rebates and expand net metering from a max 100kw system up to 300kw. Advocates of the bills believe both the rebates and net metering will encourage small business to also invest in solar, not just residential.
However, Show Me Solar, a grassroots solar advocacy group, emailed supporters Wednesday asking them to call lawmakers and voice opposition to the bills offered by Miller and Silvey, believing the policy will raise rates and fails to provide sufficient concessions to solar power.
“Show Me Solar does not believe it’s worth selling out Missouri ratepayers,” said Mollie Freebairn, Show Me Solar executive director. said. “Most importantly, this gives [utilities] a way to leave the public out of the process of deciding what type of infrastructure is used to replace. The public overwhelmingly wants renewable clean green energy like solar and wind energy to backup natural gas.”
Rachael Herndon was the editor at The Missouri Times and also produced This Week in Missouri Politics, published Missouri Times Magazine, and co-hosted the #MoLeg podcast. She joined The Missouri Times in 2014, returning to political reporting after working as a campaign and legislative staffer.
Rachael studied at the University of Missouri – Columbia. She lives in Jefferson City with her husband, Brandon, and their two children.